Still, the company had little reason to rejoice. Its middle- and long-term prospects were clouded by a competition in which Boeing held much the stronger hand. At the high end of the market, Boeing would be launching its new jumbo, the 747-8, for a fraction of what Airbus had invested in the A380 (about $16 billion). Airbus misled itself in thinking there would be a large market for the A380. It isn’t likely to develop, at least not for several years and maybe never. Airbus still thinks it may be able to sell somewhere between three hundred and five hundred A380’s; the numbers fall well beneath the company’s rosier forecasts. Moreover, Airbus may continue to be harassed by the airplane’s problems, one of which is weight. Being overweight, of course, drives up the airplane’s operating costs. In any case, very large airplanes are no longer popular with airlines. After 9/11 and the SARS epidemic, people became less disposed to fly in them.
Boeing may find itself in the enviable position of having two new airplanes—the 747-8 and the 787—ready to begin operating in the current decade. The 787 is scheduled for delivery in mid-2008, the 747-8 in 2010. It won’t matter much if these delivery dates slip, as they well may. The 787’s production line is sold out for 2008–10.
With its deservedly popular minijumbo, the 777, Boeing bought time. The airplane was designed in the 1980s, entered service in the early 1990s, and will probably be a major revenue earner for another few years. However, Boeing talks about replacing all versions of the 777, except for the longest-range version, with longer-range models of the 787, a smaller airplane.
In the middle market, Airbus’s A330 is likely to continue selling for a few more years, but will be pushed aside by the 787, once deliveries are under way. For a time, Airbus tried persuading itself and the airline industry that the widely popular A330 would remain the prudent choice for years to come. With fuel prices the issue, Airbus claimed that the operating costs of an improved A330 would probably be as low, or nearly so, as those of the supposedly superefficient 787. And then, Airbus observed, an improved A330 would cost a lot less than Boeing’s innovative new airplane. Was it perhaps too innovative?
The airline market was unimpressed by the Airbus argument. Many carriers wanted new equipment, especially in Asia, and they could afford it. Boeing’s claim that the 787’s operating costs would be 20 percent lower than the A330’s resonated. The carriers wanted more range from the next middle-market airplane. The 787 offered that. And point to point sounded right.
All sides then watched Airbus struggle with the question of how much to invest in an improved A330. But the very different operative question was when its management would swallow the reality: competing against the 787 would dictate a new Airbus model, not a derivative. The next question then was how much the company could invest in developing this new airplane, the A350, with so much of its engineering talent, not to mention financial resources, committed to the A380 and also a new military transport, the A400M. How advanced could the A350 be made to become? How much new technology would it need to compete against the 787?
These were hard questions. They confused and lengthened the process of designing the A350. Airbus found itself offering different versions, occasionally at the same time. The designers were asked, in effect, to create an airplane whose performance characteristics would compare favorably with the 787’s, yet do so without embodying quite as much new technology and also manage somehow to offer a few advantages of its own.
The thinking was that a larger airplane than the 787—with a 10 percent higher seat count or even more—would better suit the needs of various carriers in East Asia, the Middle East, and Europe than the 787 would. Emirates Airline, rapidly growing and with a global route structure, became a target of this thinking. And so the A350 got bigger—big enough, Airbus thought, to be able to compete against not just the 787 but also its larger sibling, the 777. “We are positioning our program to be a 777-200ER killer,” said Olivier Andries, the A350 program manager.33 (The 777-200ER is the long-range version of the airplane.)
In designing their new airplanes, Boeing and Airbus had to satisfy the airlines’ all but overwhelming priority: lower operating costs. That meant lighter aircraft and stronger engines. In building these new models Airbus and Boeing planned to rely mainly on lightweight composite materials. But they diverged on just how much of these materials would be used in place of aluminum, and exactly which ones to rely on. Boeing chose layered CFRP (carbon fiber reinforced plastic). It is the lightest, strongest, and most resistant to corrosion. But the carbon fiber raises questions, the first of which is cost. Working with carbon fiber is very labor-intensive, hence expensive. Using it in load-bearing surfaces is a calculated but real risk; the lamination must be perfect. Moisture is the enemy. It causes the spaces inside the layers between the material to expand; these layers are called honeycombs.
Another problem lies in the tendency of ground service equipment to bump into sitting airplanes on occasion and cause some damage. “Ramp rash” is the term for this nuisance. Depending on its location, the damage, or dent, can become a problem if not properly repaired. With carbon fiber, the damaged skin swiftly recovers its seamless surface and disguises the effects of whatever damage may lie beneath. With aluminum, of course, the damage shows and can be swiftly repaired and the aircraft’s downtime minimized. The vulnerable parts of an airplane are the wingtips, slats, and flaps—anything that is hanging down or sticking out from the lower belly can be hit by a vehicle, a jet bridge, or a de-icing boom.
Airbus pioneered the use of carbon fiber on commercial aircraft in the mid-1980s with the tail fin of its A310. Company officials cite a step-by-step increase in the use of composite materials, each new application becoming a learning experience. Early in 2006, an Airbus spokesman declared that “Boeing has missed the boat on several smaller steps in using composites, so it is trying to do it in one giant leap.”34
Airbus has planned to make the A350’s wings from carbon fiber, but not the fuselage. That would be a bridge too far, according to one company official. The Airbus position was that by using an alloy known as aluminum lithium in the fuselage, the weight-saving benefits would be nearly as great as with carbon fiber but without the same risk of maintenance crews having to make tricky repairs in a pressurized environment. Aluminum lithium also costs significantly less, although that is not one of the advantages Airbus has cited. But ramp rash continues to be mentioned by the same Airbus executives as an argument against an all-composite fuselage.
Asked to comment on Airbus’s position, a Boeing spokesperson said: “Based on our knowledge and experience we believe that CFRP is a better choice for primary structure. Airbus does not have the same level of familiarity with this material—though they do use it. Our evaluation of materials included a review of durability, strength, weight, cost, manufacturability and reparability…. Remember, we have developed proprietary manufacturing solutions that enable us to see cost benefits, manufacturing benefits and reparability benefits that are unique to Boeing. A company looking to make a material decision without the benefit of our unique solutions might not be able to understand the full value behind selecting CFRP as the material of choice for primary structure.”35
What the Boeing statement didn’t say was that the benefits “unique to Boeing” and the “proprietary manufacturing solutions” were drawn from the company’s experience with CFRP when it was closely involved with developing the B-1 and B-2 stealth bomber programs. Airbus, of course, had no such experience.
FOR ABOUT THIRTY YEARS, the feverishly fought-over middle market was a preserve, held first by Boeing and then by Airbus. There are roughly three thousand aircraft currently serving this market, mostly Boeing’s 767’s and Airbus A330’s, which will be replaced by 787’s and A350’s over the next twenty-five years. Boeing, of course, has regained a sizable lead, but these are early days. In the years ahead, Airbus isn’t likely to catch up, but should acquire a respectable share of that market. Some of the airlines that fly the A330 will no doubt buy th
e A350 so as to save money by preserving “fleet commonalty.”
At some point, however, the focus of the duel will shift from the middle market to the lower end, where Boeing and Airbus will compete for advantage in the even bigger replacement market for the next generation of single aircraft; these will be the successors to each company’s runaway best seller: Boeing’s 737 and Airbus’s A320. Together, these single-aisle airplanes comprise close to 70 percent of the market as a whole. Moreover, they are fully amortized; each sale is pure profit. Neither side is in a hurry to replace these two airplanes, since sizable orders for both continue to arrive with all but clockwork regularity. “Why shoot the golden goose?” asks Harry Stonecipher in retirement. Why indeed? And then, announcing a replacement aircraft would cause all those orders to evaporate.
Still, the estimable 737’s and A320’s will begin to be replaced in a few years—between the early and middle part of the next decade. And here again, it’s advantage Boeing. Sometime in 2008 or 2009, Boeing can, if it chooses to, announce the launch of its replacement aircraft. It will be described as a new-generation model, built around the 787’s technology.
A similar announcement by Airbus will come later, but how much later is unclear. Airbus is overstretched. It is bedeviled by problems with the A380, and both its engineering and financial resources are spread thin by the effort to build an A350 that will attract airlines that haven’t yet ordered 787’s. Stated differently, Airbus ought to preempt Boeing—begin sooner to develop its A320 replacement aircraft. But it can’t, not right away.
Briefly, Boeing would appear to be in a position to tilt the playing field and gain a two- or three-year advantage in the epic struggle for dominance of the market for thousands of new single-aisle aircraft. The question is, will Boeing shoot the golden goose and gain an edge in this bread-and-butter market, or will it rest on its current laurels, as it did before and as Airbus then did?
The appearances may be deceptive. The reality is that neither company is likely to have a new single-aisle airplane before 2014 or 2015. Besides offering lower operating costs, the new models will have to be reliable enough to assure that turnaround time on the ground not exceed twenty minutes. More important, the so-called next-technology engines that will power these airplanes probably won’t be available before 2014. Each of the three engine companies is working flat out to make what amounts to a huge leap in technology. “The mother of all battles” is a term used by some of the people directly involved to describe the engine competition they see lying ahead.
After building the 777, Boeing pulled away from its core business and flew on automatic pilot for a decade or so. The performance of Boeing’s leadership during those years is a reminder that it may be better to be lucky than to be smart. Boeing was lucky. Its new version of the 747 may be a successful program, although less so than had it been built in the late 1990s, when it was for a time being exposed to the airlines. By then Boeing had most of the technology that is now built into the 787, about which its board was for a long time hesitant.
Boeing’s Sonic Cruiser, an idea that preceded 787, was a long step away from reality, but one that Boeing pushed hard to advance and that ended ignominiously. Yet much of the technology intended for the Sonic Cruiser made possible the 787. Put differently, the notional Sonic Cruiser led straight to a sensible variant that may have saved Boeing Commercial.
Over the past twenty years, Airbus invested far more heavily in research and development than Boeing. Taking some recent years, 2000 through 2004, Airbus spent more than $8 billion on R&D. Boeing spent less than half that. Yet Boeing is marketing the most technologically advanced of airliners, thanks in part to the smart defense programs it worked on.
Airbus was neither lucky nor unlucky. It was building very good airplanes and doing so less expensively than Boeing, and with a smaller labor force. Indeed, Airbus was doing many more things right than Boeing had been doing. As the new century began, Airbus was becoming pleased with itself. It then began mixing complacency with an arrogance of the kind usually associated with Boeing. As it forged ahead of Boeing, Airbus’s style shifted from being collaborative to high-handed, on occasion even punitive. Another page from the Boeing book.
Besides overhauling the champ, Airbus decided to build not just a jumbo à la Boeing, but a superjumbo. A case could be made for such an airplane, but it drew on a strategy from which others, including Boeing, were distancing themselves. Their own revisionist strategy was based on the assumption that since the new technologies made possible aircraft that could take people where they wanted to go, not just to some major metropolis, the better part of wisdom lay in building such an airplane. Airbus’s strategy of putting most of its chips on a jumbo aircraft bigger and better than Boeing’s came to resemble the thinking of generals who always wanted to fight the new war with the tools of the last one.
IN THE EARLY SPRING of 2006, Airbus’s plight was forcefully driven home, first by the two biggest customers for large commercial aircraft, then by Chew Choon Seng, the boss of Singapore Airlines, another big buyer, the envy of the airline pack and role model for several carriers. The setting for the first blow was a resort outside Orlando, Florida, where seven hundred figures from the International Society of Transport Aircraft Trading were holding their annual conference. On March 28, Steven Udvar-Hazy, ILFC chairman and one of the two preeminent customers, called on Airbus to scrap its existing design for the A350 and start over with a new airplane, one with a new fuselage as well as a new wing.
By staying with the airplane’s current design, Udvar-Hazy warned, the company would probably gain no more than a 25 percent market share against the 787. He then admonished Airbus to do an equally radical remake of its larger A340, an aircraft that the market had been disdaining. Henry Hubschman, who is president of GECAS, the largest lessor of airplanes, told an interviewer that he agreed “completely” with Udvar-Hazy. “We’re not interested in a Band-aid reaction to the 787,” he said. Airbus, he added, should develop a new family “that incorporates even more of the new technologies [than] the 787 is doing.”36
In his shot across Airbus’s bow, Udvar-Hazy conveyed a sense of urgency, noting that Boeing’s 787 had a lead of two and a half to three years; that a decision to remake the A350 would have to be announced before the Farnborough Air Show in July—then just four months away.
A week later Chew Choon Seng echoed Udvar-Hazy and Hubschman, saying that Airbus, “having gone to the trouble of designing a new tail and introducing a lot of new composites,…might as well go the whole way and design a whole new fuselage as well instead of using something old. It would make it more directly competitive with the 787.”37
Because their own interests were centrally involved, these three movers and shakers had been studiously blunt. It’s not complicated. The buyers do not want to leave most of the market for midsize wide-bodied aircraft to one supplier. They require competitively priced models, and that means aircraft that offer similar advantages.
Among those in Orlando who listened to Udvar-Hazy telling Airbus what to do was John Leahy, the company’s sales chief. A little earlier, Leahy had given an upbeat presentation of Airbus’s competitive position that must have struck all or most of the audience as far distant from his real thinking. In Toulouse, an autocritique had been under way for several months. It included a lot of badmouthing of senior people by other senior people. Leahy himself had bundled most of the complaints into a letter he sent to Gustav Humbert, Airbus’s boss in Toulouse, and four other senior managers. His letter was then leaked to Der Spiegel, the German newsmagazine. “In the view of investors, Boeing has taken over the leadership in all airplane categories,” the letter said. Leahy then suggested a major public relations campaign to win back lost territory. “Our strategy is very weak in comparison to Boeing,” the letter continued. Leahy, according to Der Spiegel, “relentlessly denounced failures and strategic mistakes.”38
The autocritique embodied in the leaked Leahy letter clearly poi
nted to the presence of a dissident faction in Toulouse. And Udvar-Hazy’s performance at the trade meeting in Orlando aroused suspicion that he had been encouraged to tell Airbus what it needed to do by some of its own executives, a few of whom were in the audience. Something was—is—going on either chez Airbus or between Airbus and its parent company, EADS. A divorce won’t happen. EADS owns Airbus, and Airbus provides most of its parent company’s cash inflow. But the guessing post-Orlando was that an Airbus cabal was trying to embarrass EADS into spending the $8 billion to $10 billion it would take to do what should be done.
The leadership at EADS belatedly did what had to be done, perhaps because of the maneuvering by Leahy and like-minded colleagues. Still, whether the cabal would have prevailed had not the Airbus crisis of June 2006 dictated going forward with an A350—and soon—is unclear. The new model was unveiled one month later at the Farnborough International Air Show, where all parties were awaiting a sign of renewal at Airbus. The airplane was officially designated A350XWB, for “extra wide body.”
Just over a third of the A350 will consist of composites, most of which will be built into a new wing. The rest of the airplane will combine aluminum lithium with traditional metals. It will have new engines. A new wider fuselage is intended to provide a cabin that will exceed the comfort level of the 787, with roomier seats in rows nine abreast. Airbus is promising more width at eye level, shoulder level, and at the armrest.
Given its size, however, the A350 appears designed to go after the market currently dominated by Boeing’s 777, less so the 787. Airbus will offer three versions, with the number of seats ranging from 270 to 350. The market for these so-called minijumbos is smaller than the market for the 787, but amounts to nearly the same in dollar volume. And it is growing rapidly.
Airbus got itself back on track by deciding to couple its future with this new airplane. The A350 is intended to begin carrying passengers by 2012, at which time it will become the flagship airplane, more important certainly than the superjumbo. It will take travelers just as far as the A380, in greater comfort perhaps, and at lower seat mile costs.
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